Tesla bought Bitcoin. It feels as if that sentence should properly begin with “Imagine if …” and a wry chuckle. But no. Imagine no longer.
Tesla Inc.’s annual report disclosed the electric-car maker updated its investment policy last month and then bought $1.5 billion of the crypto. That news added roughly $5,000, or 14%, to said crypto on Monday morning, sending it to a new all-time high. Tesla’s own stock rose about 3%, adding roughly $11 billion in market cap, because — well, probably because of this. I don’t know.
On the face of it, a change in investment policy that simply by its disclosure adds hundreds of millions of dollars in value to a company’s portfolio — and billions to the company’s market cap — in a sort-of virtual virtuous circle seems like a winning change. Ordinarily, such things lie forgotten in the 10-K.
Yet it’s hard to shake the feeling that it is just inadvisable to be (forgive me) crossing the memes like this. It’s as if the Earth has shifted a billionth of a degree on its axis or we are approaching some singularity in the capital markets with Lovecraftian overtones.
Tesla’s explanation for the move is relatively straightforward: “To further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Fair enough. You may have noticed cash doesn’t earn very much these days. (Tesla’s current stock price may reflect that issue to some degree.) Also, companies routinely diversify their cash holdings, especially if they operate in multiple countries.
Bitcoin is anything but routine, though. New, stateless, volatile, subject to cybertheft and potential government regulation, it is a currency only if you squint really hard and can jump through the hoops of actually using it. Tesla’s comment that it expects to begin accepting Bitcoin as payment in the near future is irrelevant; doing that doesn’t require hoarding it ahead of time.
On the other hand, the casual reference to Tesla taking Bitcoin as payment down the road is like digital catnip, helping to boost the value of that $1.5 billion bet. And it is a bet. Tesla is speculating with $1.5 billion of the roughly $19 billion it had on the balance sheet at the end of December, $12 billion of which was raised from selling more equity into last year’s frenzied rally. If confirmation were needed that Tesla announced several at-the-market offerings in 2020 simply because it could, it’s hard to think of one that is more resounding.
The move raises the usual questions about Tesla’s governance. Apart from the speculative nature of it, the fact that CEO Elon Musk has been tweeting heavily about cryptocurrencies of late should ring alarm bells in whatever passes for Tesla’s boardroom. Not necessarily because anything untoward has happened, but it’s fair to say Musk has some history to live down when it comes to the tweeting. Giving authorities any reason to scrutinize Tesla is inadvisable. One has to wonder what a regulator might make of this tweet from just a month before the “updated” investment policy was approved, for example:
I guess you could argue having a currency that is only “almost as bs” as fiat money helps to diversify Tesla’s exposure on the bs axis, leading to a lower weighted average of bs ratio or some such. I’m not a corporate treasurer.
One way in which the foray into crypto certainly helped on Monday was taking the spotlight off some less exciting news. Tesla was recently summoned by Chinese regulators to answer complaints about quality and safety issues with its cars. China is crucial for Tesla because, as the 10-K also revealed, revenue in this growth company’s home market in the fourth quarter was still lower than two years previously:
Having witnessed Gamestonk, we surely all knew that this Venn diagram eclipse of the most speculative car company in the world and the most speculative “currency” in the world was coming. Tesla sells stock because it can and then uses some of the proceeds to buy Bitcoin because it can. It’s as simple, and disconcerting, as that.
AssumingTesla bought its Bitcoin at the average price for January — or $34,672 according to Bloomberg — it would own roughly 43,000 units. The gain on Monday morning’s rally would add up to about $220 million.
Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities.
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